All right. Looks like we're all set. Thank you everyone for joining in to the Cannabis Chronicles series by Alliance Global Partners. My name is Aaron Grey, Senior Cannabis Analyst here at AGP. Joining me today, we have the pleasure of welcoming our CEO and President of Village Farms, Michael DeGiglio. Michael, thanks so much for coming on.
Good morning, Aaron. My pleasure.
All right. Before we get started, I wanna point your attention to our disclosure slide. The format of today's discussion will consist of a 45-minute Q&A discussion with myself and Michael. During that time, you can submit questions you'd like me to ask Michael. If you have a question, go ahead and type it down to the chat room, or you can email me at agray@allianceg.com. With that, I think we're all ready to get started. Michael, thanks again for joining me today. I think a great place to kinda start off for maybe some investors or people on the call who are new to the story, maybe if you'd like to give a high-level view of Village Farms to kind of get everybody off and level set.
Sure. Well, good morning, everyone. So Village Farms, we've been around north of 30 years, 32- 33 years, one of the longest and oldest operating companies in a controlled environmental agricultural space, underlying its high-tech agriculture operations. What we do using high-tech greenhouse facilities, we started with cut flower. In the cut flower industry, migrated over to the high-value hydroponic vegetable industry, where we were for many years. We always look for what is new and innovative within both the crops we are currently growing and in the case of cannabis, a whole new crop. At the end of the day, based on our experience, every crop is unique, but cannabis, in a way, is just another agricultural crop. They're all difficult. They're all hard to get there. They all take time.
For us, that was an exciting move for us, to go and to start in cannabis in Canada for many reasons. One is we didn't have to compete, like we do on vegetables, under NAFTA, when we're competing against Mexico that has a cost structure just incredibly lower than Canada or the United States. We weren't first to enter the market. We had looked at the medicinal market in Canada back in 2014. It just wasn't right for us. Recreational on the rise, and that's where we decided to go. We moved that quick, kept doing our homework, understanding what it would take to win at the end of the day, understand the competitive landscape. There were so many companies moving at the speed of light.
We took our time, and we always, you know, being first sometimes an advantage. In this case, we didn't think it was, just being last and winning was. The approach we took is to understand what is required and, based on our three-plus decades, our DNA is you always wanna be the low-cost producer. Produce the highest quality, safest, and best product broken down by what the consumers want in terms of attributes, but you always have to do the lowest cost. We built that model out. We did that by converting two of our million-plus sq ft greenhouses that were in British Columbia, just outside Vancouver. That gave us, based on our know-how of ramping up seven, eight very large-scale mega projects over decades, how difficult that really is. It takes about five years to ramp up.
If you don't have seasoned labor, the training processes, the attrition rates, understanding the chronological data historically for 10 or 20 years is an advantage. We had all that going for us, so we just had to shift to a cannabis crop from another. That approach, I think, proved very well for us. In fact, later when we talk about the U.S., we'll leverage that same strategy up as well. However, in Canada, it really proved out well. We were able to get in the market very quickly. We received our wholesale license in the first quarter. We sold only wholesale to the marketplace. We were EBITDA positive, and we remained EBITDA positive for 10 additional quarters. We're in our 11th straight quarter, EBITDA positive.
About a year later, we were awarded our retail license to sell retail by Health Canada. I think we've you know made great inroads there. Today we are a produce company although those revenues are gonna start being overshadowed by our movement in cannabis. We are looking forward to you know creating more opportunity for us both domestically and internationally. We were founded as a U.S. company. I am the founder of Village Farms and still a large shareholder. Aaron.
All right, Michael. Thank you very much for that introduction there. I think the first question to kick things off, some news this morning coming from you guys, voluntarily delisting from the TSX. You remain being listed on the Nasdaq. Would love some color, on the thought process behind that decision for you guys to make that move.
Yeah, certainly. I mean, it was a difficult decision, but in the end, we made the decision 'cause we think it's best for the company and best for the shareholders. We did tremendous due diligence, tremendous time with our stakeholders, our attorneys, the funds we represent. I think we have one of the highest institutional filings of any cannabis company, either in the U.S. or Canada, talking with them. A lot of due diligence looking at the history. In the end, well, there were a couple of things that we felt in looking at the pros and cons. The pros clearly outweighed it. For example, this year, just our fee to the Nasdaq was north of half a million dollars.
Nasdaq's 100,000. Both exchanges prohibit us from operating in the United States, and in Canada still is federally legal, which I understand, but then one has to think, why are we supporting two exchanges? When you really look at compliance with both exchanges, just the legal in Canada and supporting the TSX, especially acquisitions and whatnot, is very demanding to support two. We're an international company. There were a lot of reasons. By the way, I have nothing but the greatest thanks. You know, we've been on the TSX for over 15 years, so it's a long run back in 2006, and it's been a great partnership. The times change, the company's changing, much more international.
Really, as we start approaching costs, you know, with management time and legal of $1 million, I think that money is better spent going somewhere else. Our liquidity is very solid on Nasdaq, way up over. You know, I would be remiss if I just didn't express that in watching the capital markets, some of the decisions in Canada on the capital markets, especially with naked shorts as opposed to the U.S., I think it's problematic and, it's concerning. We've seen that going on for a while. It's just a different philosophy between the two exchanges. We felt that the time was right for us to move on. That's really the reasons behind it. There are other reasons, but that's the main catalyst.
For anybody who has shares on a TSX, they'll automatically just trade on the Nasdaq, so that's not a concern at all.
All right, Michael, thank you very much for that color, in terms of the decision to delist TSX, remain listed on the Nasdaq, Village Farms. Want to go back into the fundamentals now. One of the things we talk about often, Michael, right, Village Farms versus some of the other LPs. We talk about, you know, oftentimes being a second mover, but would love for you to kind of set the stage here, in terms of how you view Village Farms being differentiated versus other LPs. You know, some of the things you talked about profitability. You guys have more of a focused brand strategy been proven in your M&A. I'd love to kind of kick it off to you to kind of talk about how you're differentiated from some of the other LPs out there.
Well, I think a lot of ways, actually. I mean, we're always looking at the competitive landscape, trying to understand why our competitors make certain moves just as a learning curve, and then coupling that with our 30 years experience, how we approach the cultivation side of the marketplace. We, you know, we understand how difficult it is to ramp up huge facilities, millions of dollars a square foot. You know, today, we build a new facility of closing in on $2 million, maybe more per acre on a 25-acre facility. It's a huge capital investment. These assets are special use assets. You can't convert them. So you really have to know what you're doing. You know, we learned that over many years, so we were able to apply a lot of what we learned to not make mistakes here.
As I mentioned, we decided to do a conversion of existing facilities that gave us a huge advantage in terms we were able to ramp up very quickly. Originally, we had seen, we modeled our business over and over from a sensitivity point of view, and we based our business that at some point, all, regardless of how strong the brand is, and brand is very important, we think eventually brands will be built in cannabis, both in the U.S. and Canada, and other places. I don't really think anybody could say today brands are where they need to be, or are brands, it's more strains. That will come, and it's very important. We've always been vertically integrated, and that's an important point.
The foundation has to be tied to cost because in agriculture, and it still is, this is a vertical industry today. There's not a lot of light asset models yet because it still has to be proven out at the cultivation side that we looked at revenues coming in. We've also, it was wholesale, non-branded, branded at CAD 2 at maturity. That would be our income. Canada, you know, competing in Canada is very difficult. We're paying CAD 1 of excise tax, licensing tax, property tax, payroll tax. And then, of course, we distribute through the provincial governments, the margins for provincial governments in the 30%-40% range. The fact that we're competing against the illicit trade, that's a very established pricing out in the market.
One thing good for us and all the other LPs is we did have a built-in customer base in Canada in converting to legal. However, you know, there was a pricing out there, and you have to take that into account. All those, you know, understanding the playing field with Canada and the regulatory issues, all that we would have to have a cost of production of X, and this would be the income and maturity. We built the cultivation model on that. Once that was built, designed, and worked, then we were able to go out and hire just an incredible management team led by Mandesh Dosanjh.
He just did a phenomenal job in bringing in people, deep CPG experience, and they were able to take that baton and now go out and build brands, understand and hone what the consumer wants, being able to design products for the consumer and meet that need. I think the model worked because we've never looked back on being EBITDA positive, at least till today. The market is getting more competitive as we go. I think that just gives you a little bit of color on how we approached it.
No, that's very helpful. Yeah, I've had the pleasure of meeting the team, including Mandesh over in Delta BC, and I agree. You know, one thing you talked about in terms of the cost structure, the asset base you have over in Delta BC, you know, with your greenhouse and converting that, and that's really led to a lot of your success, you know, in my opinion, right? Flower, including pre-roll, makes up about 7% of the market today. You know, for you guys, your focused brand strategy has helped to make Pure Sunfarms, the leading, you know, flower brand in cannabis. You know, can you speak to the brand proposition that you believe resonates with the consumer and has led to this success?
Yeah. I mean, that and many other reasons. I mean, the management team was clear. You know, flower, as you said, it still represents 70%, maybe 73.5% on a given quarter, excuse me, at the marketplace with pre-roll, and it's been pretty stable. That's not to say that other products won't gain traction. They will over time, but we were recently focused on that part of the market, and let's try to have excellence in what we do there. Consistently, I think quarter-over-quarter, we've been the number one flower brand and you know, three of the largest provincial governments that we could sell, and now Québec will be coming in. That just didn't happen. That was worked at in both the brand positioning, the cost structure.
We'd be, you know, in this initial branding we've done since we came to the retail market, we wanted an everyday premium experience. What that means is the very best strains, premium best strains. This is not everyday allowance. These are the best we can do, high in what the market wants, say, THC and potency, always improving. Just being able to offer that as an everyday price, because again, if the illicit market is behind the scenes and anyone who thought, you know, you could sell for $50 a gram, I mean, that's just gonna open up the black trade, and it's still very much there. That whole positioning has gone very well, and we've now taken the same prudent approach into pre-rolls, and we're gaining market share there.
I think pre-rolls will continue to expand, and it's an area we see ourselves being a leader in. Even though we've started slow, it's gaining it. As far as the other products, edibles and vapes, very competitive. There's a lot of companies buying market share at a loss. We're not gonna play that game right now if we don't think. In fact, as I mentioned to you, I really think 2022 going into early 2023 will be a watershed year in Canada, and there'll be a lot of changes. You know, we're ready for it. We're geared for it, and I think you'll start seeing some of that penetration in those other products increasing very quickly.
Well, thanks for that color, Michael. And can you talk about the brand position, right, kind of premium quality, within there, but it's a category within flower that's seen a lot of pricing pressure, you know, for some time now. You know, how do you feel about the competitive marketplace, you know, for flower, some of the pricing pressure, and how Village Farms looks to position the Pure Sunfarms brand within this?
Yeah. What's interesting is, I've said this, and I think you know this, Aaron, I mean, we never changed our pricing pretty much. A little bit, but in general, the strategy. When we first launched in retail, we launched about 32% under the next highest LP to the retail market. We've more or less tried to be in that area. It oscillates somewhat. We didn't do that just to undercut other LPs. We did that because we want to offer an everyday experience, and we have the illicit trade in the background. That's really what Health Canada designed as a mechanism and legalization to cannibalize the illicit market to the retail market. That's the goal. That's what they want.
These are, as I said earlier, the playing field to do that, so we had to position that pricing. Now to do so, you have to have a low cost, so you can't do it, and many companies can't do it. In addition, besides the LPs that are cultivators, you have a lot of other companies that are on the light asset model, so are trying to build market share, and it's very competitive, other spaces like vapes. I think, you know, our strategy was right there, and, we continue to innovate with strains, improvements and cost reduction, because, things will always get more competitive. That's why brands are still important, but they're not everything because it takes a long time to develop brands, really effective brands and a lot of time and money.
Keep in mind that in Canada, we really can't market. It's a whole different market. You have to find very myopic ways to do that. That makes it even harder.
Mm-hmm.
It's a tough place to compete. It's not for the weary of mind, I can tell you that.
Right. No, absolutely. You guys have done a great job in flower, right? Number one flower brand, Pure Sunfarms. You talked about your initiative to grow your market share within pre-rolls. Really seems like low-hanging fruit because, you know, a lot of similarities between flower and pre-roll. Can you talk about, you know, how that process has kinda gone? You know, you said it was kind of a slower start, but you're ramping up now. What are some things you're noticing that's different maybe between the pre-rolls and the flower and how you're looking to ramp that up and gain market share?
Well, I think with flower, you know, we wanna continue to maintain a dominant position. Again, others may say that they're number one across the board, but it's clear going on four or five quarters now that we're the number one flower. That can always change. You know, a new strain comes in. There's differences. We've learned a lot of what we need to do there and consistently innovate with our strains. We're putting a lot of effort into that. We have some exciting launches coming up going forward. Pre-roll, I think pre-roll in general is just a market that we see growing, as I said, and we're innovating there, putting in some of the world's most advanced machinery right now.
You know, I don't wanna talk too much because I don't know who's listening, but we are investing heavily in some of this machinery for pre-rolls that'll make us more and more competitive going forward. We think that, you know, being a vertically integrated company in this market in Canada is very important as opposed to just being a light asset model. I'll leave it at that. I think the proof will be in the pudding going over the next few quarters, as you see. I think you'll see that penetration rate for us increasing.
All right. No, absolutely. Going into some of the derivative product categories, you talked before about some of 2.0 Products, vape, edibles, you know, highly competitive. Let's talk about from Village Farms or Pure Sunfarms perspective then. It sounds like, maybe you're still putting more of the focus on some of the flower pre-roll categories, keeping an eye on the 2.0 Products, but still have some innovation within that. Can you just talk about maybe some of the focus of the company, because you talked about it being highly competitive, but still probably see some opportunity there over time. Where are you kind of allocating the time in terms of some of the 2.0 ?
Yeah. The data doesn't lie. I mean, we look at that. We'll do whatever we have to do. I'll give you an example in beverage. I mean, beverage had a lot of hype, and we looked at it and say, you know, even when you go to mature markets like Colorado, I mean, flower still rules a decade later. Of course, it comes down, and it will, and there'll be even more exciting innovations coming in the future. We're an asset industry in Canada, and for us, we want to continue. We're a growth company. We wanna make money, reinvest that money, grow the company. If we're looking at beverage, there are a couple companies experimenting with it. We don't see traction yet, significant traction. If we do, there's nothing preventing us from entering that market.
When we do, we wanna win there. Let us watch others. I mean, we've learned a lot from watching others do things and then analyzing why, and the same thing applies to vape. As long as flower is dominating and we excel in it, and our margins. If you look at our margins last quarter, I mean, we had a significant amount of non-branded, including wholesale sales in our margin and were able to return in low to mid-40%. If you were to extract just say the retail side of that, I mean, interpolate what that number is, and that's a pretty strong margin. We wanna continue to build as long as we're not the 70% market share. It just makes the right sense for us now.
Now we may look at other ways to brand and do other things with some of these products. One of the reasons for Québec is to continue to expand our flower. Québec is an example, there are no edibles allowed or vapes legally. You know, it's a perfect place for us right now. It's not like we're not gonna innovate. Of course, we do, and we'll look at those markets. A combination of all those markets, confectionery, beverage, edibles, vapes, so on, are still 25% of the market. There's a large illicit competitor there as well. I hope that makes sense of what we're doing.
No, it does. That's helpful, so appreciate that. You know, you just kind of brought up Québec, kind of leads right into my next question. You guys just recently acquired, you know, ROSE LifeScience. Can you speak to the acquisition and how ROSE will help you enter the Québec market, right? It's kind of a distributor there. First, why don't you give some, you know, commentary of ROSE, what they do in the Québec market, and how Village Farms and the Pure Sunfarms brands will be able to leverage that to enter the Québec market, which you guys have made it an initiative for some time and now have executed on that.
Yeah. Well, I'm really super excited about Québec. I mean, even in the produce days, Québec, I remember going up there early days, and I love being up there. I love the people, I love the culture. It's part of Canada, but it's unique in many ways, and it's exciting. It's been on our radar screen, and we've looked at really what that market is, how is it different from the other provincial areas. We had talked, and a lot of our long-term shareholders know we've talked about Québec a lot. For us, it's how do we enter that market? There were a number of cultivators. How does the Québec government see themselves different from other provincial governments? There was a lot of homework to go in. For us to do M&A, you know, we're not opposed to M&A.
You know, for us, you know, dilution is only dilution if eventually your share price doesn't go up. It has to be accretive. Finding the right situation, the way we structured the deal in Québec proves to our shareholders that we value that team, that Québec team, the local people in Québec who are part of it. Any M&A we do, the DNA of the companies and the people we bring in has to align with Village Farms, Pure Sunfarms, our whole team. This team did. They had the same ethics, same values, hardworking. It was a lot of CPG experience, finance experience, understood the market very well in Québec and how it's different. Example, you have to ship to each store. You don't have to do that in Ontario, so there are differences in what you can sell.
We did our homework, and we were fortunate enough that we got the ROSE family to come on board with Village Farms. The structure was 70/30, so we're all in this together as a marriage. We are now integrating the two companies, Pure Sunfarms. So ROSE is under Pure Sunfarms. They're integrating and coming up with a very sound strategy moving forward. ROSE has a very unique situation in Québec. Number one, besides being a cultivator, they are the distributors for other LPs and many craft. I think 10 or 12 of the craft producers in Québec go through ROSE with their brands or even some of the brands in Québec. There'll be some information on some new brands coming out in Québec shortly. I won't talk about it today.
Secondly, on the LP side, ROSE is the exclusive distributor for companies like Tilray, Sundial, and others. They have a unique distribution conduit for those other companies. That's very unique in the marketplace in Québec. We're very excited about it. I think it's the right acquisition at the right time. We tend to look at M&A where we can't organically do it. If we can't do it faster, better, cheaper, then we'll look to M&A, and this is an example where it's very strategic, not unlike the BH, the Balanced Health Botanicals acquisition we did just two months prior to that, as it illustrates how we do it.
You know, we're not doing it to just have more revenue in the marketplace, but it has to be very strategic and show that it's gonna be very accretive going forward, and we believe it will be.
All right. No, absolutely. You talked about, you know, bringing some brands, you know, in the near term, maybe this, some color that's been a high topic of discussion, you know, since the acquisition has been made. Maybe if you could provide some detail in terms of, you know, timing. Some people have come in and done different brands, right, in Québec than what they have in the other provinces. Just any color in terms of how you're looking to now, you know, go into the market, you know, following the acquisition, I'm sure it'll be helpful to the listeners here.
Well, I think that ROSE, you know, I don't wanna take anybody's thunder from there because it's in the works. I will say that there will be, you know, some new brands coming in that have very unique attributes within the Québec marketplace. That is being formulated and will be executed pretty shortly, probably within the first quarter and going on into the second quarter between the Pure Sunfarms leadership and ROSE leadership. It's very exciting to me when I look at, you know, Québec is such a huge supporter of Québec grown product and a lot of these smaller, yet very influential and important craft guys. We can help them. We're really excited about helping them grow, looking at their strains, providing improvements.
It's sort of a really unique position where we can really do good for other growers in Québec under that ROSE umbrella. If you really look at other LPs, there aren't a lot of other LPs that have that capability to enhance, in a way, competitors, but competitors that are distributing through the same ROSE supply chain.
Mm-hmm.
All the way to the store, all the way to the dispensary without going through a warehouse or anything. Even the logistics of that is something that's managed by ROSE. We can bring a lot of grown knowledge and talent to those folks as well. We can look at very unique strains within our own cultivation site that we acquired now under ROSE. It's a very high tech brand, an indoor growth facility that provides some unique capabilities that I don't wanna mention today of what we can do, tied to branding and unique strains. Of course, how Pure Sunfarms in conjunction with ROSE can help any other strains and opportunities for Pure Sunfarms together with ROSE. I'll leave it at that. Stand by on that.
Stand by. We'll keep an eye out for it. All right. Well, you already provided kind of some color in terms of your overall kind of M&A perspective. Go ahead and jump into, to the U.S. now, right? You kind of talked about it earlier. You guys have some U.S. operations as well, some optionality there as well, both on the CBD and future THC opportunities. Why don't we start off with CBD and then we'll go into potential THC opportunities over time in the U.S. CBD in the U.S., you recently purchased Balanced Health, which gives you access to the U.S. CBD market. It's a highly fragmented market today, but it certainly has potential over time.
Can you speak to the strategy behind the acquisition and how you fit within the Village Farms umbrella, and how you're looking to execute on the U.S. CBD market?
Sure. Well, there's a couple of things that will come to mind. Number one is really the U.S. legislative process for both high THC count CBD. You know, we started Village Farms, actually, we're an American company, started as an American company. When I look at it from my lens, I have to shake my head and just wonder how this great opportunity for this great plant that can do wonders continues to just stumble within the legislative process. To say it's frustrating is an underestimate. We sit here always trying to see what clarity can be gained for the U.S. U.S. is number one on our radar screen.
In fact, a lot of our decisions on the resources we use in other markets, both in other international markets like Europe, for example, is always gonna be taking into account when we can move and move swiftly in the U.S. I think one thing I will say as a sidebar, before I talk specifically about Balanced Health, is as you know, we have almost 6 million sq ft in the West Texas mountains, which we deem as an incredible optionality for us in the event of legalization, be it at the state level of Texas at some point or federal or however we can operate there. Keep in mind, even to your question about the TSX earlier, you know, we're prohibited by Nasdaq predominantly. That's why we're not in the U.S. market.
That listing is very important for us to maintain a major listing. Maybe there'll be some legislation coming down the pipe that'll change that. When we look at what may happen in the unique market in the U.S. upon legalization of cannabis. The current model may change. It may really change because you're looking at it as a very sort of parochial state-level production within the state, sales within the state. Could interstate commerce at some point come down the road? Can cannabis be sold at retail? You know, John Mackey made the statement a couple of years ago that he will be selling at Whole Foods, cannabis upon legalization. We're constantly seeing where that model may change, and we believe it will change.
When you look at Balanced Health, one is they're a very unique cannabinoid company that will probably be expanding into other health and wellness and lifestyle type of products in the future because consumers of cannabinoids like CBD and certain formulations do it for a lifestyle, they do it for health reasons. I will say that, you know, we look at the medicinal market much different. Medicinal to us is just another way of attaining cannabis in a non-recreational legal state or country. A lot of times the history has shown it's a stepping stone to rec. When we look at the medicinal side, we see that as very separate, and I could talk more about that even when we look at the EU.
However, coming back here, this is truly, you know, lifestyle, but health and wellness and where can we go with that? However, it is under the cannabis umbrella, right? It's a cannabis plant, and it fits with our strategy going forward because, one, BHB, you know, even through their CBDistillery, one of their brands, they do 30,000 orders a month. They have one of the top platforms for CBD distribution online, one of the top five brands. They're EBITDA positive, and they have a huge opportunity, as other CBD companies do, to get into the retail bricks and mortar upon greater clarification by the FDA at some point.
That's, you know, if that should come in the next year or two, hopefully, it's estimated that that cannabinoid market, that CBD cannabinoid market will be at $15 million-$60 million by 2025. Very exciting. We also see that as an extension to what may happen within the high THC line. Not that it's an end all for us. We see other channels, as I just mentioned. Online sales, we think will play a role, and this platform that they've built online, their reputation, based out of Denver, Colorado, has a great opportunity for us to build on that in the future.
We saw it as a very strategic opportunity to start thinking about how we're gonna affect ourselves in the U.S. with our assets, leveraging off our knowledge and what we've done in Canada, the assets we have there. We're excited about that opportunity, for them as well.
You know, fantastic. On the CBD side, you're talking about, you know, potential regulations from the FDA. We're all waiting for that. You know, in a major state, California, recently, you know, passed a bill to allow for, you know, ingestibles, you know, containing CBD hemp. Can you talk about maybe how California might look to be an initial market for how the broader U.S. might look when FDA regulations come, and maybe how it opens up the doors for bigger brick-and-mortar to, you know, start selling some major food CBD products?
Yeah. I mean, look, we wouldn't have done it if we didn't think at some point that regulation will happen, whether it's gonna take a congressional decision to force the FDA to look at it from the supplemental side or whatnot. The FDA has been pretty rigid on looking at it any other way, but coming through Congress. Whether that is going to be part of another cannabis bill in the future, that's yet to be defined. It may be this coming year, it may not, but I think it will come. You just can't hold it back. We're gonna be patient on that. You know, that's an area when you look at our produce business where our customers are one of the largest big box and retail customers.
We can lend a lot of support to try to move that into retail as well. There's a synergy there that we think can help, BHB maximize their gains upon that. It's so hard on the regulatory side to say when that's gonna happen and how it will. We thought there would be some traction there this year, just like we thought there'd be some traction on the higher THC side, and there's not. It's really anybody's guess what next year looks like. Hopefully, it doesn't become a lame duck type of year till after the midterm elections, but it's anybody's guess. We're happy with that investment. As I said, that can be a great platform, one of the platforms we use in the U.S.
I do believe it, this model in the U.S., unlike Canada that came out with a federal legalization, the U.S. is a little different. We have all these states doing it, but not federal.
Mm-hmm.
I think you'll see some changes there. I don't think the model will be the same. We're gonna be ever watchful and prudent. I can assure you upon the ability to go forward, we will be there and we will take an aggressive stance. Of course, Texas, if it happens, when it happens,
Mm-hmm.
That's something we feel that nobody has an advantage of. Texas is huge, and it's the second most populated state, almost the same population as Canada. It's growing rapidly. At some point, that's gonna be a very exciting. It's almost we call it, you know, not so much a state as a country in a way within a country, so.
Yeah. You're talking about Texas, right? You talked about the current state-by-state environment. You know, right now in the U.S., those big MSOs that are offering in that state-by-state environment, you know, having to have a supply chain within each state, you know, cold space extraction or otherwise. How would you plan to leverage your Texas assets, you know, once, let's say, federal legalization occur or either a Texas, you know, legalized sale of cannabis, it has to be federal, though, I imagine, for you to participate in that because of your listing. How would you look to leverage it more at the federal level, you know, once regulation's allowed?
Yeah. If you look at us today, I think with our Texas cannabis assets, we're probably one of the top largest in the world in terms of footprint, for an indoor greenhouse facility, not looking at outdoor. That's gone very well. Large scale, low cost, high quality. If we said we've been successful, which we have in that, and we leverage that same thing, same strategy in Texas, where we have nearly 6 million sq ft, incredible growing area, high 5,000 ft elevation. We don't even need supplemental lighting there at the latitude we are. Granted, we believe that there will be interstate commerce. That may take a few years to get there's no doubt. I'm not saying it'll be out of the gate.
Where we are, we can focus on Texas, that potentially for recreation, it's a billion-dollar market based on the same population as Canada. You know, 60%-70% of Texans wanna see legalization. When that happens, may not happen for a while, but when it happens, that's a huge internal market that we have with assets right there ready to go, just like in Canada. If that is even gonna start out as a dispensary model, then we'll do whatever we have to do to compete and win there. We'll be competing with other MSOs, but no one has a start in Texas yet. It's gonna be like the Kentucky Derby, the final large state left, gates open, horses racing, and we're gonna go after that.
However, if you really look at the matter of scale we have there, upon being able to export out of Texas, then it's gonna come down to who can do the highest quality at the lowest cost. Freight's not that big of a factor with cannabis in any form, even flower. That affords us. If we didn't have the Texas assets and we wanted to build assets for the U.S., Texas would be on the top three locations in the continental United States that we would look at to go in that area. I think, you know, that's something we really don't get a lot of acknowledgment, but no other Canadian LP has that position.
Remember, as I said, how important it is to have a great grower, management team and employees and all those attributes that can be readily available on a conversion as opposed to a whole new build. We like that position. Now, that doesn't mean that's the only place we're gonna operate, and we won't look at other opportunities, including M&A, once we're able to do that. You can see changes already in the U.S. landscape. You can see pricing pressures in certain markets already starting. You know, we think the restriction, it's very difficult for a lot of MSOs if they have 30- 40 different production facilities, different technologies spread out. Hard to manage that. We've been through that in our tenure, and it's very hard.
If you look at the Canadian footprint with the three greenhouses on the same property, we've converted two. If we convert the third one, we can actually do over 35% of the total Canadian capacity from one footprint. That's how you manage large scale. That's what we have in Texas as opposed to having, you know, 20 locations and managing that. Very difficult to do. Now, that's down the road, but, like, what we do at Village Farms is based on short-term and long-term. We take that all into account in our strategies.
No, thank you for that color, and you know, we'll wait and see if some federal legislation changes things for how cannabis is viewed here in California, in the United States. You know, wanted to shift you know, from the United States over to international. Village Farms looking to you know, receive its EU GMP certificate that allow it to sell to medical markets such as Germany. You know, Germany is a market that's currently you know, dominated by Canadian LPs as well as Bedrocan. Can you talk about you know, once you receive the EU GMP certificate, how you plan to you know, maybe go into the German market or other similar medical markets?
Certainly. I mean, first I would say that the team did brilliantly in gearing up, by the way, with some German partners we have in getting ready for EU GMP certification. It was a big undertaking. I think we're one of the first greenhouses to do that. Excited. The test was concluded back in September, October. We had to wait a year because of COVID, and the German authorities couldn't travel. We're very hopeful by the end of the first quarter into the second, we'll have our EU GMP certification, and we're ready to go exporting to Germany. As you know, we already started exporting to Australia for the medicinal market there a couple months ago. You know, it's a learning curve gearing up for it.
We're very focused on that export market. I would say. You know, I don't know, like, when you mentioned Bedrocan, I think they're an exporter from Holland to Germany. I think there's only three cultivators in Germany, two are Canadian LPs, one's a German company. We looked at cultivating in Germany extensively for the medicinal market, and in the end, we decided not to pursue it and wait for recreational, almost the same as Canada. Because in all the due diligence we were doing and all the modeling, there was talk at some point that Europe would start to move and maybe Germany first. As you know, a lot of times as Germany goes, the rest of the EU goes, with the exception of Netherlands, and I'll talk about that because they're already there.
When we really looked at pricing in Germany, restrictions on being a large scale. We have some concerns of profitability there. You have to develop the consumer much more than a rec consumer. If you look at the Netherlands, where you have 590 coffee shops for 30 years, you already have a built-in consumer that you just have to bring over. It's a big undertaking in Germany medicinal, and we decided that we could be much more competitive in Germany with our German partners exporting out of Pure Sunfarms. That's our plan there as it is in Israel as well, and Australia. That's not biting off more than we can chew because that's part of the Pure Sunfarms 2022 and beyond strategy to increase exports to these countries.
Israel is not yet EU GMP certified. It may go, as may Australia, but right now it's Germany. We're really looking forward to what that can be. You know, I think we're gonna do well. I mean, these numbers are not huge yet in Germany, but they're growing. Some of our competitors think they're doing very well, EUR 8 million or EUR 10 million exports. Those are good numbers, and we'll start there. That said, though, one of the reasons we didn't pursue it is we saw what was happening in the Netherlands and we're super excited. We have huge deep roots in the Netherlands for 40 years. A lot of our people here are from the Netherlands. Love it, and the fact that the Netherlands government has taken the initiative for legalization.
For those who may not know, the coffee shops in the Netherlands for thirty-something years have been legal. There's about 579. This experiment is for about 70 or 80 of the coffee shops, which have to buy exclusively from the 10 license holders of which we believe we'll be one. You have to cultivate. It's not an export market to the Netherlands, so we have to cultivate there, and we're gearing up for that cultivation. Initial looks is we may even be able to generate some revenue first quarter of 2023, which is not that far away a year. We're really excited about that. We think that could be a stepping stone to our ability to compete in other markets as they open.
This is sort of a, you know, the Netherlands, I would start saying is becoming a short term. You know, it was medium term to short, but some of the other opportunities in the EU, one may consider medium term. We have to be there today to compete long term. We're really excited about that as well.
Okay. No, thanks for that color. Just one more I wanna dive into from my last question. Israel, you mentioned it there, EU GMP not currently required. You said on your last earnings call those at the top of your list. So given GMP is not a requirement, a lot of Canadian LPs are selling into it. Can you talk about the timing and when you expect to, you know, begin sales, you know, and find a partner for the Israeli market, 'cause it seems like that's been one of the, you know, hottest markets for Canadians to export to, I believe.
Yeah. Well, we're working on that now. We're talking to a couple of potential partners there. That's in the works. But we wanna make the right, you know, right decisions, and we're not pushing hard on it. I would say these initiatives we just talked about, Netherlands, Germany, and Israel are imminent, meaning you know, we should be active into the second quarter. With the Netherlands, this will be a construction year of an asset there. That's a build. Hopefully, as I said, by the beginning of 2023, we start. But the export side, I would say start looking second quarter, third quarter as we go forward.
All right. Fantastic color. Thank you for that. All right. Well, that's the end of my questions. Michael DeGiglio, before I end things, I wanna kick it off to you if you have any closing remarks?
I like where we stand today. I mean, we've done everything prudently. I'm aligned with our shareholders. We're not afraid of M&A, but it's gotta make all the sense in the world. We're not gonna make decisions and do things just for the sake of doing them. I think we've demonstrated that we are prudent in our capital spending. We kind of do our raises very surgically, take on what we need. This decision this morning with the exchange we've been on for over 15 years, we didn't take lightly, but we think it's the best decision for the company. We're very excited about the future. We've, you know, started to pivot to a lifestyle CBD company. Health and wellness is a big part of it.
I think, when I compare how we're doing to others, at least in the seat I am, I'm pretty satisfied. Again, it's a massive industry, highly regulated, and very competitive. The fact that we've done most of this organically really from the beginning, I think is a tribute to the team we have here, and we really look forward. I think 2022, especially in Canada, is gonna be an exciting year, pivot year, and we like how we're positioned for that. Excited and hopeful about the U.S. I'll leave it at that. Thank you for participating today.
Absolutely. Again, thank you everyone for joining in. Michael DeGiglio, CEO, President of Village Farms, ticker VFF, now just trading on Nasdaq, no longer on the TSX. My top pick among Canadian LPs. Again, Michael, thank you so much for joining. Thank you everyone for tuning in, and I hope everyone has a great day and happy holidays.
All right. Happy holidays to everyone. Thank you. Thank you.